Sir Keir Starmer is said to be considering raising a borrowing spree to fund an increase in defence spending.
It is just one way the Prime Minister is understood to be considering paying for the long-delayed defence investment plan.
The package, which will be published next month, contains an increase of £18billion in spending to fund Britain's rearmament.
The Ministry of Defence (MoD) and the Treasury have been negotiating the details for months in a bid to prepare the UK for the growing global threat posed by China and Russia.
A strict deadline has been set for publication before the Nato summit on July 7, according to the Telegraph, with officials concerned the Prime Minister would otherwise arrive in Turkey without concrete commitments to present to allies.
Rachel Reeves has firmly ruled out relaxing her fiscal rules to accommodate the defence spending, repeatedly arguing that bond markets would lose confidence in Britain if she diluted her commitment to reducing national debt.
The Chancellor has also dismissed tax increases or the Liberal Democrats' proposed "defence bond" as funding mechanisms.
Labour's fiscal headroom has narrowed considerably since November's Budget, when the spending watchdog calculated Ms Reeves had £21billion of borrowing capacity within her rules.
Sir Keir Starmer is said to be considering raising UK borrowing to fund an increase in defence spending
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The outbreak of war in Iran is said to have significantly affected production.
Relying solely on borrowing would push the Treasury dangerously close to its fiscal limits, sources indicated.
Donald Trump, who will attend the summit alongside Sir Keir, has repeatedly pressed European nations to boost military expenditure and assume greater financial responsibility for their own defence by next year.
The defence investment plan has faced multiple delays amid disagreements between the MoD and Treasury regarding both the scale of the settlement and funding sources.
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The package, which will be published next month, contains an increase of £18billion in spending to fund Britain's rearmament
| GB NEWSConservative Shadow Defence Minister David Reed warned Labour’s delay in publishing the Defence Investment Plan is putting British firms at the "back of the queue".
He told GB News: "The blueprint for how we're going to spend taxpayers' money on our defence industry and our armed forces for the years to come. This is so they can do the job of keeping us all safe, and we all know how volatile the world is becoming.
"We've waited for nine months for this defence investment plan to come out.
"The Government said that they were going to release it back in October last year, and it's still nowhere to be seen."
He added: "We need to be making sure that that plan is there for defence, that we know what we're doing.
"We need to have the conversation with the country on how we fund it.
"That should be around welfare, and it should be around the size of the state, issues that I don't think the Government are grappling with."
Donald Trump has repeatedly pressed European nations to boost military expenditure and assume greater financial responsibility for their own defence by next year
|GETTY
The defence investment plan will address every element outlined in last year's Strategic Defence Review, including enhanced homeland defence and improved capabilities across land, sea, air and space domains.
However, fiscal constraints mean the plan will fall short of the review's most ambitious proposals.
Welfare cuts are understood not to be among the savings measures, despite major calls for reform of Britain's ballooning benefits system.
Government sources fear any changes would risk a backlash from left-wing backbenchers who forced ministers to reverse benefit reductions last year.
Conservative Shadow Defence Minister David Reed has warned over Labour’s delay in publishing the Defence Investment Plan | GB NEWSSir Keir has also been warned that further delays to the Strategic Defence Review could leave Britain exposed to Russian aggression.
President Trump is likely to demand European Nations, including Britain, to further increase spending.
Defence Secretary John Healey acknowledged frustration over the delay, promising the DIP was "coming soon" but arguing it had to be "properly budgeted for".
Defending the delay, Labour Defence Minister Al Carns told MPs the Government would publish the plan "as soon as is feasible", adding that ministers were urgently working through "serious decisions" on defence spending.